<PAGE>

                                     FORM 10-Q
                                          
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
                                          
                                     (Mark one)
                                          
               (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
                                          
                   For the quarterly period ended October 30, 1998
                                          
                                         OR
                                          
               ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
                                          
                            Commission File No. 0-13076
                                          
                                LOT$OFF CORPORATION

               DELAWARE                                        74-2640559
     -------------------------------                       ------------------
     (State or other jurisdiction of                       (I.R.S. Employer
      incorporation or organization)                       Identification No.)


1201 Austin Highway, #116, San Antonio, Texas                  78209-4859
---------------------------------------------              ------------------
(Address of principal executive offices)                       (Zip Code)


                             Telephone: (210) 805-9300
                ---------------------------------------------------- 
                (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X   No:     
                                      ---     --- 

                                -------------------- 

4,203,610 shares of the Registrant's common stock were outstanding at 
December 2, 1998 which includes 689,086 shares held in escrow and awaiting 
distribution to holders of allowed general unsecured claims.

                                -------------------- 
<PAGE>

                                 FORM 10-Q INDEX

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ---- 
<S>                                                                         <C>
                                     PART I

ITEM 1.   Financial Statements. . . . . . . . . . . . . . . . . . . . . . .   3

          Condensed Consolidated Balance Sheets:  October 30, 1998
          (unaudited); January 30, 1998; and October 31, 1997
          (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . .   3

          Condensed Consolidated Statements of Operations:  thirteen and
          thirty-nine weeks ended October 30, 1998 (unaudited); and 
          thirteen and thirty-nine weeks ended October 31, 1997
          (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . .   5

          Condensed Consolidated Statements of Cash Flows:  thirty-nine
          weeks ended October 30, 1998 (unaudited); and thirty-nine
          weeks ended October 31, 1997 (unaudited). . . . . . . . . . . . .   6

          Notes to Condensed Consolidated Financial Statements
          (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . .   8

ITEM 2.   Management's Discussion and Analysis of Financial Condition 
          and Results of Operations . . . . . . . . . . . . . . . . . . . .  15


                                      PART II


ITEM 1.   Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .  20

ITEM 3.   Defaults Upon Senior Securities . . . . . . . . . . . . . . . . .  20

ITEM 6.   Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . .  21

          Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . .  21

          Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . .  22
</TABLE>

<PAGE>

                                        PART I

ITEM 1.   FINANCIAL STATEMENTS


                         LOT$OFF CORPORATION AND SUBSIDIARIES
                                          
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                    (UNAUDITED)

                                       ASSETS

<TABLE>
<CAPTION>
                               October 30, 1998    January 30, 1998    October 31, 1997
                               ----------------    ----------------    ---------------- 
<S>                            <C>                 <C>                 <C>
CURRENT ASSETS:

Cash and cash equivalents         $   556,582         $   473,533         $   511,137
 
Accounts receivable                   174,012             113,463             725,436

Merchandise inventories            16,889,446          15,309,715          15,727,987

Prepayments and other 
  current assets                      254,175             265,814             747,756
                                  -----------         -----------         ----------- 
TOTAL CURRENT ASSETS               17,874,215          16,162,525          17,712,316
                                  -----------         -----------         ----------- 
PROPERTY AND
  EQUIPMENT-NET                     3,235,544           3,632,965           3,831,268

OTHER ASSETS                          719,370             548,464             405,275
                                  -----------         -----------         ----------- 
TOTAL ASSETS                      $21,829,129         $20,343,954         $21,948,859
                                  -----------         -----------         ----------- 
                                  -----------         -----------         ----------- 
</TABLE>

  See accompanying notes to these condensed consolidated financial statements.

                                          -3-

<PAGE>
                                          
                        LOT$OFF CORPORATION AND SUBSIDIARIES
                                          
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                    (UNAUDITED)

                   LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

<TABLE>
<CAPTION>
                                       October 30, 1998    January 30, 1998    October 31, 1997
                                       ----------------    ----------------    ---------------- 
<S>                                    <C>                 <C>                 <C>
CURRENT LIABILITIES:

  Credit facility                        $  8,782,014       $  6,330,598         $  8,849,527

  Accounts payable-trade                    6,064,272          3,132,965            4,142,159

  Accounts payable-other                    2,149,337          3,333,093            1,868,505

  Accrued expenses and
    other current liabilities               1,636,175          1,597,859            2,136,796

  Bank checks outstanding                     953,755          1,048,855            1,075,778

  Current portion of long-term debt           215,257            131,553               42,804
                                         ------------       -------------        ------------ 
TOTAL CURRENT LIABILITIES                  19,800,810         15,574,923           18,115,569
                                         ------------       -------------        ------------ 
LONG-TERM DEBT, less
  current portion                           4,090,106          1,263,263            1,401,339


 STOCKHOLDERS' (DEFICIT)
  EQUITY:

  Series A preferred stock                       -                  -               4,280,400

  Series B preferred stock                       -             3,991,050            3,991,050

  Common stock                                 42,045             25,325                8,561

  Additional paid-in capital               65,139,405         60,447,467           56,147,275

  Accumulated deficit                     (67,243,237)       (60,958,074)         (61,995,335)
                                         ------------       -------------        ------------ 
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY       (2,061,787)         3,505,768            2,431,951
                                         ------------       -------------        ------------ 
TOTAL LIABILITIES AND
  STOCKHOLDERS' (DEFICIT) EQUITY         $ 21,829,129       $ 20,343,954         $ 21,948,859
                                         ------------       -------------        ------------ 
                                         ------------       -------------        ------------ 
</TABLE>

  See accompanying notes to these condensed consolidated financial statements.

                                             -4-
<PAGE>

                        LOT$OFF CORPORATION AND SUBSIDIARIES
                                          
                   CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                 Thirteen Weeks Ended            Thirty-nine Weeks Ended       
                                         --------------------------------     ------------------------------   
                                         Oct. 30, 1998      Oct. 31, 1997     Oct. 30, 1998    Oct. 31, 1997   
                                         -------------      -------------     -------------    -------------   
<S>                                      <C>                <C>               <C>              <C>
NET SALES                                $10,419,964        $ 9,365,822       $33,785,801       $31,665,991    
COST OF SALES                              7,268,611          6,376,204        23,757,617        21,583,734    
                                         -----------        -----------       -----------       -----------    
GROSS PROFIT                               3,151,353          2,989,618        10,028,184        10,082,257    
                                         -----------        -----------       -----------       -----------    
OPERATING EXPENSES:

  Selling, advertising, general  
    and administrative                     6,150,880          5,745,409        17,723,120        16,531,218   
  Depreciation and  amortization             202,977            193,311           605,541           547,881   

  Pre-opening expenses                       377,707             31,811           447,830            31,811   

  Store closing costs                        121,629               -              844,885              -      

  Reorganization items                          -                  -              100,000            500,000   
                                         -------------      -------------     -------------    -------------   
TOTAL OPERATING EXPENSES                   6,853,193          5,970,531        19,721,376        17,610,910   
                                         -------------      -------------     -------------    -------------   
OPERATING INCOME (LOSS)                   (3,701,840)        (2,980,913)       (9,693,192)       (7,528,653)   

OTHER EXPENSE (INCOME):
  Non-operating (income) expense              (1,501)              -           (4,209,555)             -       
  Interest (income) expense, net             345,444            154,417           801,526           423,858    
                                         -------------      -------------     -------------    -------------   
TOTAL OTHER (INCOME) EXPENSE                 343,943            154,417        (3,408,029)          423,858    
                                         -------------      -------------     -------------    -------------   
INCOME (LOSS) BEFORE INCOME
  TAXES                                   (4,045,783)        (3,135,330)       (6,285,163)       (7,952,511)   

(BENEFIT FROM) INCOME TAXES                     -                  -                  -                -       
                                         -------------      -------------     -------------    -------------   
NET INCOME (LOSS)                         (4,045,783)        (3,135,330)       (6,285,163)       (7,952,511)   

PREFERRED DIVIDENDS                             -               (58,856)             -              (89,171)   
                                         -------------      -------------     -------------    -------------   

EARNINGS APPLICABLE TO
  COMMON STOCK                           $(4,045,783)       $(3,194,186)      $(6,285,163)      $(8,041,682)   
                                         -------------      -------------     -------------    -------------   
                                         -------------      -------------     -------------    -------------   
INCOME (LOSS) PER COMMON SHARE: 
  Basic                                  $     (0.96)       $     (3.73)      $     (1.51)      $     (1.78)    
                                         -------------      -------------     -------------    -------------   
                                         -------------      -------------     -------------    -------------   
WEIGHTED AVERAGE SHARES
  Basic                                    4,202,951            856,080         4,176,092         4,513,023   
                                         -------------      -------------     -------------    -------------   
                                         -------------      -------------     -------------    -------------   
</TABLE>

   See accompanying notes to these condensed consolidated financial statements.

                                             -5-

<PAGE>
                                       
                     LOT$OFF CORPORATION AND SUBSIDIARIES
                                       
                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         Thirty-nine Weeks Ended
                                                               ------------------------------------------
                                                               October 30, 1998          October 31, 1997
                                                               ----------------          ----------------
<S>                                                            <C>                       <C>
 CASH FLOWS FROM OPERATING
    ACTIVITIES:
 Net income (loss)                                               $(6,285,163)              $(7,952,511)

 Adjustments to reconcile net loss to net cash 
    provided by (used in) operating activities:

    Depreciation and amortization                                    605,541                   547,881

    Asset impairment charges                                         119,912                      -   

    Reorganization items                                             100,000                   500,000

    Non-cash interest expense on long-term debt                      150,909                      -   

 Changes in assets and liabilities:

    Accounts receivable                                              (60,549)                   (7,584)

    Merchandise inventories                                       (1,579,731)               (2,753,029)

    Prepaid and other current assets                                  11,639                  (370,256)

    Other assets                                                      16,944                   (46,932)

    Accounts payable-trade                                         2,931,307                 2,983,190

    Accounts payable-other                                        (1,183,756)                 (579,496)

    Accrued expenses and other current liabilities                   (61,684)                   13,286
                                                                 -----------               -----------

 Net cash provided by (used in) operating activities              (5,234,631)               (7,665,451)
                                                                 -----------               -----------

 CASH FLOWS FROM INVESTING
    ACTIVITIES:
    Capital expenditures                                            (328,032)                 (374,363)
                                                                 -----------               -----------

 Net cash provided by (used in) investing activities                (328,032)                 (374,363)
                                                                 -----------               -----------
</TABLE>
                                       
  See accompanying notes to these condensed consolidated financial statements.

                                      -6-
<PAGE>

                      LOT$OFF CORPORATION AND SUBSIDIARIES
                                       
                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (UNAUDITED)
                                 (CONTINUED) 

<TABLE>
<CAPTION>
                                                                   Thirty-nine Weeks Ended
                                                           ---------------------------------------
                                                           October 30, 1998       October 31, 1997
                                                           ----------------       ----------------
<S>                                                        <C>                    <C>
 CASH FLOWS FROM FINANCING
   ACTIVITIES:
 Proceeds from credit facility                                46,966,394             44,324,149

 Payments on credit facility                                 (44,514,978)           (40,871,203)

 Bank checks outstanding                                         (95,100)               508,068

 Payments on long-term debt                                     (104,298)              (267,287)

 Proceeds from long-term debt and warrants                     3,269,368                   -   

 Net proceeds from sale of Common and Preferred    
   Stock                                                            -                 4,094,783

 Net proceeds from exercise of stock options                     126,671                   -   


 Other increases (decreases) to paid-in capital                   (2,345)                  -   

 Cash in escrow                                                     -                   330,000

 Dividend payment                                                   -                   (58,856)
                                                            ------------           ------------

 Net cash provided by (used in) financing activities           5,645,712              8,059,654
                                                            ------------           ------------


 Increase in cash and cash equivalents                            83,049                 19,840

 Cash and cash equivalents at beginning of period                473,533                491,297
                                                            ------------           ------------

 Cash and cash equivalents at end of period                 $    556,582           $    511,137
                                                            ------------           ------------
                                                            ------------           ------------


 SUPPLEMENTAL DISCLOSURES OF
   CASH FLOW INFORMATION:

 Cash paid during the period for interest:                  $    572,409          $     442,626


 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCIAL
   ACTIVITIES:

 Conversion of liabilities subject to compromise to:
    - Long-term debt                                       $        -              $  1,444,762
    - Accounts payable-other                               $        -              $    626,503

    - Series B preferred stock                             $        -              $  3,991,050
    - Additional paid in capital                           $        -              $ 24,188,229

 Conversion of Series B Preferred Stock to:

    - Common Stock                                         $      15,964           $       -   


    - Additional paid-in capital                           $   3,975,086           $       -   

 Warrants issued                                           $     187,850           $       -   
</TABLE>

  See accompanying notes to these condensed consolidated financial statements.

                                      -7-
<PAGE>
                                       
                      LOT$OFF CORPORATION AND SUBSIDIARIES
                                          
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)

NOTE 1:   The condensed consolidated balance sheet at January 30, 1998 has been
          condensed from the audited consolidated balance sheet at January 30,
          1998.

          The condensed consolidated balance sheets at October 30, 1998 and
          October 31, 1997, the condensed consolidated statements of operations
          and cash flows for the thirty-nine weeks ended October 30, 1998 and
          October 31, 1997 and the condensed consolidated statements of cash
          flows for the thirteen and thirty-nine weeks ended October 30, 1998
          and October 31, 1997 have been prepared by the Company without audit. 
          In the opinion of management, all adjustments necessary to present
          fairly the condensed consolidated financial position, results of
          operations and cash flows have been made.  The results of operations
          for the thirty-nine week period ended October 30, 1998 are not
          necessarily indicative of the operating results for a full year or of
          future operations.

          Certain information and footnote disclosures normally included in
          financial statements prepared in accordance with generally accepted
          accounting principles have been condensed or omitted.  These condensed
          consolidated financial statements should be read in conjunction with
          the consolidated financial statements and notes thereto included in 
          the Registrant's annual report on Form 10-K for the year ended
          January 30, 1998.

          The Company is a regional, extreme value retailer specializing in
          close-out merchandise.  The actual merchandise mix fluctuates by
          category, by season and by store based on customer needs and buying
          trends, demographics and the availability of products at close-out
          prices.  This merchandising concept is designed to appeal to
          value-conscious shoppers and other bargain hunters, and management is
          hopeful its continued implementation will lead to increased store
          traffic and improved operating results.  The Company's business plan
          is focused on achieving higher gross margins, higher store
          contribution and controlled corporate overhead, all designed to
          promote overall profitability, and on being a major factor in extreme
          value retailing in Texas.  The key elements of this strategy include
          the geographic consolidation of the chain and the liquidation and
          closing of under-performing stores and stores located outside of the
          reduced market area.  The management team is concentrating on
          optimizing the contribution from store operations while maintaining
          only the absolute minimum amount of corporate overhead necessary to
          support store operations, on expanding its presence in Texas, on
          collecting on judgments from significant litigation (see Note 5) and
          on maximizing shareholder value. 

          The Company's ability to continue as a going concern will be affected
          by a number of factors, including, but not limited to, the need to
          remain in compliance with the terms, covenants and conditions of it
          revolving credit facility, the degree of success in continuing to
          increase sales, the ability to achieve an operating profit and the
          ability to maintain trade credit and merchandise flows to its stores. 
          While management believes that the downsizing of stores and the
          reduction in the geographic area it serves has facilitated its efforts
          to improve the Company's operating performance and that the
          recapitalization implemented upon the consummation of its Plan,
          coupled with the receipt of net lawsuit proceeds, the receipt of
          contingent claim proceeds from GECC (see Note 4) and a private note
          financing (see Note 4), have strengthened its financial position, no
          assurance can be given that the Company will be successful in its
          continuing efforts to return to profitability.  The anticipated
          receipt of additional proceeds from the Company's lawsuit related to
          certain parties' breaches of contractual obligations, as well as
          certain other violations, especially conversion, related to the
          Company's November 1994 Regulation S offering would further strengthen
          the Company's financial position.  

                                      -8-
<PAGE>

          If the Company's plans to improve operations are not successful in
          producing results which comply with the covenants of its revolving
          credit facility (see Note 4), which the Company and GECC amended July
          24, 1998, and in achieving sustained profitability, management will
          consider, among other alternatives, strategic and/or financial
          alliances with third parties and the merger or sale of all or a part
          of the Company.  

          Management believes that borrowings available under its revolving
          credit facility, available trade credit, its restructuring of certain
          obligations under the Plan, the $5.8 million in proceeds received from
          the purchase by GECC of a contingent claim on a $10,000,000 portion of
          the potential net proceeds from the judgment obtained against The
          Chase Manhattan Bank ("Chase"), net proceeds from the private note
          financing, anticipated proceeds from outstanding litigation, its
          operating cash flow and its cash on hand will be adequate to finance
          its operations.  No assurance can be given, however, that such sources
          of capital will be sufficient (additional external financing and/or
          the restructuring of existing obligations may be necessary and would
          be necessary if anticipated proceeds from outstanding litigation are
          not timely received) or that the Company will be successful in its
          continuing efforts to attain profitability.  For this reason, any
          investment in Common Stock should be considered speculative.  The
          receipt of additional proceeds from the litigation brought by the
          Company could add significantly to the Company's liquidity and capital
          resources.  See Notes 4 and 5.

NOTE 2:   On October 9, 1996 (the "Petition Date"), 50-OFF Stores, Inc.
          ("50-OFF") and its significant subsidiaries (together, the "Debtors")
          filed voluntary petitions for relief under chapter 11 of the United
          States Bankruptcy Code (the "Bankruptcy Code") in the United States
          Bankruptcy Court for the Western District of Texas, San Antonio
          Division (the "Court").  The filing was precipitated by the
          notification from 50-OFF's then asset based lender that it was in
          violation of the minimum gross margin and the minimum working capital
          financial covenants of its credit agreement and that such breaches
          constituted events of default under the loan documents.  The lender
          subsequently established additional availability reserves which
          reduced availability, imposed certain increased fees and other charges
          and accelerated fees deemed earned at the initial closing, which,
          individually and together, substantially impacted 50-OFF's financial
          liquidity and, therefore, its ability to acquire and maintain much
          needed inventory for its stores.  50-OFF was unable to secure the
          resources required to cure the defaults under the loan documents and
          to implement its business plan and effect the changes believed
          necessary to improve operations and reverse its disappointing
          operating results without the protections afforded under the
          Bankruptcy Code.  50-OFF continued to manage its business as a debtor
          in possession pursuant to sections 1107 and 1108 of the Bankruptcy
          Code while management formulated and promoted a plan of
          reorganization.  At a confirmation hearing held on June 3, 1997,
          United States Bankruptcy Judge Leif M. Clark entered an order
          confirming the Debtors' Joint Plan of Reorganization, as Amended and
          Modified (the "Plan").  The Plan became effective June 16, 1997 (the
          "Effective Date").  

          The Plan required that the Company's existing senior secured revolving
          credit facility lender, General Electric Capital Corporation ("GECC"),
          provide a post-confirmation revolving credit facility or be replaced
          by a new senior secured lender so that the Company would have a source
          of revolving funds to continue to operate.  GECC provided such
          financing.  See Note 4.  The Plan also provided for the restructure of
          the Company's collateralized obligation to MetLife Capital Corporation
          [recently acquired by an affiliate of GECC and now known as GE Capital
          Business Asset Funding ("GEC-BAF")] at a face amount of $850,000; and
          the Plan provided for the payment of such amount over approximately
          seven years.  GEC-BAF agreed to such treatment with the balance of its
          claim (approximately $3.2 million) becoming an allowed general
          unsecured claim.  See Note 3.

          The Plan also provided for the cancellation of all non-priority
          unsecured indebtedness of the Company.  Such cancellation caused the
          elimination of over $25 million of unsecured debt and the $3.2 million
          of collateralized debt which was converted to unsecured debt from the
          Company's balance sheet.  Under the Plan, as further modified by Court
          order on March 19, 1998 (see Note 3), each holder of an allowed
          general unsecured claim will, in partial cancellation of its allowed
          claim ($3,991,050 in the aggregate), receive a pro rata share of
          1,596,420 shares of LOT$OFF's common stock (the "Common Stock"). 
          Certain further obligations of the Company to holders of allowed
          general unsecured claims are secured under the 

                                      -9-
<PAGE>

          Plan by a lien up to the full face amount of the balance of their 
          allowed claims against potential net lawsuit proceeds over $3,991,050 
          from significant litigation being prosecuted by the Company.  See 
          Note 5.  As net proceeds over $3,991,050 (net of certain items set 
          forth in the Plan) from such litigation are received by the Company, 
          holders of allowed general unsecured claims will receive additional 
          shares of Common Stock and/or cash (provided that at least the Excess 
          Net Lawsuits' Proceeds, up to $1.5 million as defined in the Plan, 
          will be paid in cash) as determined under the Plan.  The receipt of 
          such Common Stock and/or cash by holders of allowed general unsecured 
          claims will result in a proportionate release of the lien.  By the 
          Company's issuing such Common Stock and/or paying such cash to 
          allowed general unsecured creditors, such creditors will be 
          essentially receiving the net value of the Company's significant 
          litigation which was pending pre-Petition Date up to the full face 
          amount of their allowed claims.  See Notes 3 and 5.

          Finally, the Plan provided for the recapitalization of the Company
          through cash raised from 50-OFF's existing common stockholders (the
          "Rights Offering") and, potentially, as discussed above, from the
          litigation.  Specifically, the Plan provided for the issuance to such
          stockholders of rights to subscribe for units, each consisting of 20
          shares of  Series A Preferred Stock and 20 shares of Common Stock (a
          "Unit").  Up to 122,009 Units and a minimum of 30,500 Units could be
          sold in the Rights Offering at $100.00 per Unit.  The record date for
          determining which holders of 50-OFF common stock ("Old Common Stock")
          were entitled to vote on the Plan and receive such rights was March
          21, 1997.  Persons who acquired Old Common Stock after such record
          date were not entitled to vote on the Plan or subscribe for Units
          pursuant to the Rights Offering.  The Rights Offering expired on May
          22, 1997.  At the confirmation hearing on June 3, 1997, the Company
          announced it had received more than enough subscriptions for Units for
          the required minimum in the Rights Offering to be met.  Subscriptions
          received in the Rights Offering were held in escrow with Bank One,
          Texas N. A. pending the Effective Date of the Plan.

          Contemporaneously with its filing of the Plan on February 6, 1997, the
          Company filed the Disclosure Statement With Respect to the Debtors'
          Joint Plan of Reorganization ("the Disclosure Statement") setting
          forth more detailed information regarding the Company and the Plan. 
          Under applicable Court rules and procedures, a hearing was held to
          review and approve the Disclosure Statement, which was approved as
          containing adequate information in accordance with section 1125 of the
          Bankruptcy Code on March 20, 1997.  Upon approval of the Disclosure
          Statement by the Court, the Plan and Disclosure Statement were
          furnished to all creditors of the bankruptcy estates and all holders
          of Old Common Stock as of March 21, 1997 and were also filed with the
          SEC.  Votes in support of the Plan were solicited, and, at the
          confirmation hearing on June 3, 1997, the Company announced that the
          Plan had been approved by both creditors and stockholders.

          On the Effective Date, certain key elements of the Plan were
          implemented, including:  the Company's corporate name was changed from
          50-OFF to LOT$OFF Corporation ("LOT$OFF" or the "Company"); the Old
          Common Stock was canceled, along with all then existing options and
          warrants to buy Old Common Stock; and 856,080 shares of LOT$OFF Series
          A Preferred Stock (each such share was convertible into two shares of
          Common Stock and was entitled to a 5.5%, $0.275, cumulative annual
          dividend) and 856,080 shares of Common Stock (LOTS:  CUSIP 
          # 545674103) were issued to subscribers to the Rights Offering for 
          gross proceeds of $4,280,400.  Also on the Effective Date, LOT$OFF 
          entered into a $15,000,000 revolving credit agreement maturing on 
          June 16, 2000 with GECC.  See Note 4.  The proceeds of the facility, 
          together with the net proceeds from the Rights Offering, were used to
          refinance the Company's debtor in possession facility, also with GECC,
          and to provide post-confirmation working capital for increased
          inventories for its then 41 stores and selected other general
          corporate purposes, including financing LOT$OFF's exit from
          bankruptcy. 

                                      -10-
<PAGE>

NOTE 3:   Prior to the Effective Date, liabilities in existence at October 9,
          1996 were reflected as liabilities subject to compromise in the
          Company's consolidated balance sheet.  The principal categories of
          claims included in such liabilities subject to compromise were as
          follows:

<TABLE>
<S>                                                              <C>
          Secured debt, 8.5%, collateralized by furniture,
          fixtures and equipment. . . . . . . . . . . . . . .    $  4,179,942

          Secured debt (capital leases), collateralized by    
          signs . . . . . . . . . . . . . . . . . . . . . . .          88,498
          Trade and other miscellaneous claims, 
          including costs of lease rejections of
          approximately $5,869,000. . . . . . . . . . . . . .      25,924,612
                                                                 ------------

                                                                 $ 30,193,052
                                                                 ------------
                                                                 ------------
</TABLE>

          Under the Plan, these $30,193,052 of liabilities subject to compromise
          were converted to: long-term debt - $1,394,816 (see Note 4); accounts
          payable other - $458,111; Series B Preferred Stock - $3,991,050; and
          additional paid in capital - $24,349,075.  These amounts may be
          subject to adjustments as a result of actions of the Court and/or
          developments with respect to disputed claims.  The procedures used to
          determine the amount of any additional liabilities or of any
          elimination of liabilities have not been completed.  

          On May 12, 1998, a decision and order was entered by Judge Leif M.
          Clark in the Company's bankruptcy proceeding in the Court effectively
          denying creditors in the bankruptcy proceeding leave to file late
          proofs of claim or, alternatively, excuse from filing proofs of claim
          by finding that the confirmation of the Company's Plan, operates as
          RES JUDICATA to bar the allowance of any late claims that have been or
          might be filed in the Company's bankruptcy case.  

          As of December 2, 1998, the Court has fixed the amount of general
          unsecured claims totaling approximately $19.7 million.  Additional
          claims totaling $6.6 million are unresolved.  The Company's best
          estimate of the maximum amount of unsecured claims which will
          ultimately be allowed by the Court is $24.1 million, $3,991,050 of
          which were satisfied by the issuance of 798,210 shares of Series B
          Preferred Stock (see below) under the Plan.  The amount of allowed
          claims may differ materially from the Company's estimate; additional
          amounts may arise from the Court's fixing of allowed claims for
          disputed amounts.   

          CONVERSION OF SERIES B PREFERRED STOCK

          On March 19, 1998, in response to the Company's motion to modify the
          Plan by consolidating certain steps to be taken pursuant to the Plan
          and with the support of the Class 7 agent and its counsel,
          representing the allowed general unsecured creditors, the Court
          entered an order to consolidate the treatment of Class 7 creditors by
          allowing the issuance of two shares of Common Stock in lieu of any
          single share of Series B Preferred Stock and other intermediate steps
          which would otherwise have been required under the Plan.  The
          immediate effect of the order was to cause the conversion of the
          previously issued, but undelivered, 798,210 shares of Series B
          Preferred Stock into 1,596,420 shares of Common Stock and the
          cancellation of the Series B Preferred Stock and any obligation of the
          Company to issue Series A Conversion Rights (as defined in the Plan)
          or Series A Preferred Stock to allowed general unsecured creditors
          under the Plan effective March 19, 1998.  Of such shares of Common
          Stock, 763,723, 20,001, 766 and 122,844 (907,334 shares in aggregate)
          were delivered to a total of 853 holders of allowed general unsecured
          claims in September 1998, October 1998, November 1998 and December
          1998, respectively, and 689,086 were in an escrow account at
          Continental Stock Transfer & Trust Company as of December 2, 1998 for
          the benefit of holders of allowed general unsecured claims pending
          delivery upon the resolution of claims objections.  Future
          obligations, if any, to the allowed general unsecured creditors (up to
          the full face amount of their allowed claims, depending only on Net
          Lawsuits' Proceeds as defined in the Plan) may be satisfied by the
          issuance of additional shares of Common Stock and/or cash (provided
          that at least the Excess Net Lawsuits' Proceeds, up to $1.5 million as
          defined in the Plan, must be paid in cash).  

                                      -11-
<PAGE>

NOTE 4:   CREDIT FACILITY

          On June 16, 1997, the Company, with the approval of the Court, entered
          into a credit agreement (as amended on August 28, 1997, December 22,
          1997, February 15, 1998, April 17, 1998, June 12, 1998 and July 24,
          1998) with GECC providing the Company with a line of credit through
          June 16, 2000 of up to $15,000,000, including letters of credit. 
          Borrowings under the line are limited to a borrowing base equal to a
          percentage of eligible inventory at cost:  August 15 through December
          15, 65%; and December 16 through August 14, 60%.  Interest under the
          line is charged on funds borrowed at the annualized yield of 30-day
          commercial paper (currently 5.1%) plus 3%.  The line of credit is
          collateralized by inventory, accounts receivable and other assets. 
          The credit agreement, as amended, contains certain reserve
          requirements, various restrictive covenants, including restrictions on
          the payment of dividends on Common Stock, and various financial
          covenants, including minimum availability, minimum working capital
          ratio and minimum EBITDA.  On October 30, 1998, the Company had
          approximately $9,601,000 available for borrowings under the credit
          facility (after reserves of $778,000) of which $8,869,000 was
          committed, leaving a net availability of $732,000, and was not in
          default under the credit agreement. 

          LONG-TERM DEBT
     
          Long-term debt at October 30, 1998 consists of five general types of
          obligations.  The furniture and fixture note, ad valorem tax notes and
          non-ad valorem tax notes are long-term debts settled as part of the
          Plan.  Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                               OCTOBER 30, 1998     JANUARY 30, 1998
                                                               ----------------     ----------------
<S>                                                            <C>                  <C>
          Promissory notes collateralized by
          furniture, fixtures and equipment. . . . . . . .         $  806,961          $  849,559

          Notes to ad valorem taxing           
          authorities. . . . . . . . . . . . . . . . . . .            371,354             414,698

          Notes to taxing authorities, other
          than ad valorem taxing authorities . . . . . . .            112,203             130,559

          Guarantee to GECC. . . . . . . . . . . . . . . .          1,924,598                -   

          Senior subordinated notes. . . . . . . . . . . .          1,090,247                -   

          Less:  current portion . . . . . . . . . . . . .           (215,257)           (131,553)
                                                                   ----------          ----------

                                                                   $4,090,106          $1,263,263
                                                                   ----------          ----------
                                                                   ----------          ----------
</TABLE>

          On April 17, 1998, as part of a corporate reorganization involving the
          formation of a Delaware limited partnership, the Company assigned its
          judgment and cause of action against Chase to such newly formed
          limited partnership.  The limited partnership was formed on April 17,
          1998 by two wholly-owned subsidiaries of the Company, as the general
          partner and common limited partner, and GECC, as the preferred limited
          partner.  GECC acquired its preferred limited partnership interest for
          $5.8 million or 58 cents on the dollar, resulting in a gain of
          $3,815,737 net of certain related expenses.  Such interest represents
          a contingent claim on a $10 million portion of the potential net
          proceeds from the $148,575,000 judgment against Chase.  See Note 5. 
          While the Company has no material present financial obligation to GECC
          or the partnership as a result of this transaction, upon receipt of
          net proceeds from Chase, or otherwise, attributable to the judgment,
          GECC could receive as much as $10,000,000 (but in no event less than a
          guaranteed $3,000,000) according to a scheduled payout with respect to
          its contingent claim.  The $3,000,000 minimum is cross-collateralized
          to the Company's indebtedness to GECC (see Credit Facility, above) and
          is payable upon the sooner of the resolution of the Chase litigation,
          April 17, 2003 or certain other events.  As of October 30, 1998, the
          Company reflects a $1,924,598 (discounted at 10%) liability in the
          condensed consolidated balance sheet for the minimum guarantee to
          GECC.  

                                      -12-
<PAGE>

          Effective July 31, 1998, the Company completed a private placement of
          $1,445,000 principal amount of senior subordinated notes (the "Notes")
          with detachable warrants to purchase up to 216,750 shares of Common
          Stock at $4.83 per share.  The proceeds were used to facilitate and
          accelerate the Company's opening of additional stores in Texas and for
          working capital.  The Notes accrue interest at 9.25%, which is paid
          semi-annually, and are specifically subordinated to only GECC.  There
          is no prepayment penalty on the Notes which mature August 15, 2000 or
          at the option of the holder if a change in control of the Company
          occurs (defined as an accumulation of 51% of the Company's Common
          Stock by any person or group) after August 1, 1999.  The warrants to
          purchase Common Stock expire at the end of July 2002.  The Notes may
          be used in satisfaction of the warrant exercise price.  In conjunction
          with the placement, the Company issued an additional 72,250 warrants
          and paid $77,250 for fees and expenses.

NOTE 5:   In November 1994, 50-OFF received subscriptions for approximately
          1,810,000 shares of Old Common Stock in a Regulation S offering to
          qualified investors.  50-OFF received net proceeds of approximately
          $861,000 from the sale of 310,000 shares and recorded a subscription
          receivable for the purchase agreements for 1,500,000 shares for which
          proceeds were never received.  

          On February 21, 1995, 50-OFF filed a lawsuit [50-OFF STORES, INC. V.
          BANQUE PARIBAS (SUISSE), S.A., BETAFID, S.A., YANNI KOUTSOUBOS,
          ANDALUCIAN VILLAS (FORTY EIGHT) LIMITED, ARNASS LIMITED, BROCIMAST
          ENTERPRISES LTD., DENNIS MORRIS, HOWARD WHITE, CHASE MANHATTAN BANK,
          N.A. AND ARIES PEAK, INC., Case No. SA-95-CA-0159] in the United
          States District Court in San Antonio, Texas against Banque Paribas
          (Suisse) S.A. ("Paribas"), Yanni Koutsoubos, Chase, Howard White and
          certain affiliated individuals and companies in connection with the
          theft of 1,500,000 shares of  Old Common Stock which certain of the
          defendants had agreed to purchase at $3.65 per share.  Among other
          counts, the lawsuit alleged breaches of contracts, securities fraud,
          conspiracy and conversion.  The conversion claim related to actions of
          the defendants in the transferring, selling and trading of the shares
          despite the fact that the defendants had never paid for such shares. 
          50-OFF sought recovery of actual and punitive damages and pre- and
          post-judgment interest. 

          On October 14, 1997, the trial of this case began before the Honorable
          H.F. Garcia.  Defendants, Paribas, Chase and Dennis Morris, appeared
          and announced ready for trial.  On November 14, 1997, after four weeks
          of evidence, the Company entered into a Settlement Agreement and Full
          and Final General Release with Paribas.  As part of the settlement,
          Paribas agreed to pay the Company $2,400,000 (of which the Company
          received $1,800,000 after attorneys' contingency fees but before other
          related expenses) in exchange for which the Company agreed to dismiss
          all claims against Paribas with prejudice.  The Company also dismissed
          all claims against Dennis Morris; however, such dismissal was not the
          result of a settlement agreement between the parties.

          On November 20, 1997, at the close of evidence, the Company obtained a
          jury verdict against Chase on its claim of conversion in the amount of
          $150,975,000, representing $12,975,000 in actual damages and
          $138,000,000 in punitive damages.  On November 21, 1997, the Company
          moved the court to enter a final judgment against Chase in the amount
          of $148,575,000, which reflects the jury's verdict, minus a credit for
          Paribas' settlement amount.  On December 4, 1997, the court entered a
          judgment against Chase in the Company's favor for $148,575,000 plus
          costs of court, pre-judgment interest on $12,975,000 at 10% per annum
          from November 18, 1994 until December 4, 1997 and post-judgment
          interest on the entire judgment amount at 5.42% from December 4, 1997.
          Subsequently, Chase filed five post-judgment motions with the court: 
          motion for new trial; motion to alter or amend the judgment; renewed
          motion for judgment as a matter of law; motion to apply a settlement
          credit and motion for leave to conduct oral deposition; and motion for
          hearing.  On February 23, 1998, the court, having considered such
          motions, the supplements to such motions, the response of the Company
          to such motions and the entire record in the cause, denied all of
          Chase's post-judgment motions. 

          Chase appealed the judgment entered by the court to the Fifth Circuit
          Court of Appeals in New Orleans (Court of Appeals Docket #98-50288). 
          The Fifth Circuit Court of Appeals requested and arranged a
          pre-hearing conference among the parties in New Orleans on May 14,
          1998.  The parties were unable to 

                                     -13-
<PAGE>

          reach a resolution at such conference, and, while discussions have 
          continued, there is no sign of resolution by settlement.  On 
          August 7, 1998, Chase filed the appellant's brief with the Fifth 
          Circuit Court of Appeals; on October 9, 1998, the Company filed the 
          appellee's brief; and on November 12, 1998, Chase filed the reply 
          brief.

          In addition to the verdict against Chase, the Company obtained a
          $30,000,000 default judgment against Yanni Koutsoubos on its claims
          for violation of Section 10b-5 of the Securities Exchange Act and
          common law fraud on November 20, 1998.  Such judgment represents
          $10,000,000 in actual damages and $20,000,000 in punitive damages.
 
          On April 6, 1998, the court entered default judgments against Betafid
          S. A., Andalucian Villas (Forty-Eight) Limited, Arnass Limited,
          Brocimast Enterprises Limited, Howard White and Aries Peak, Inc. on
          the Company's claims for violations of Section 10b-5 of the
          Securities Exchange Act and common law fraud.  Such judgments total
          $166,275,000, plus pre-judgment interest on $12,975,000 at 10% per
          annum from November 18, 1994 until April 6, 1998 and post-judgment
          interest on the entire amount at 5.31% from April 6, 1998.  On May 19,
          1998, the Company entered into a Settlement Agreement and Full and
          Final General Release with Howard White and Aries Peak, Inc.  As part
          of the settlement, Howard White agreed to pay the Company $150,000 (of
          which the Company received $100,000 after attorneys' contingency fees
          but before other related expenses) in exchange for which the Company
          agreed to dismiss all claims against Howard White and Aries Peak, Inc.
          with prejudice.

          The Company intends to vigorously pursue the substantial judgment
          obtained against defendant Chase in the above matter.  The Company,
          based upon advice from counsel, believes that it will obtain a
          favorable result in the appeal of the judgment against defendant Chase
          referenced in the above proceeding.  To the extent reasonable, the
          Company intends to vigorously pursue the collection of the sums owing
          to the Company as per the judgments that have been obtained against
          the other defendants, especially Mr. Koutsoubos, although the
          collection of these judgments is uncertain.  Akin, Gump, Strauss,
          Hauer & Feld, L.L.P. represents the Company in these matters on a
          contingency fee basis.

          The Company is party to certain other legal proceedings, none of which
          are believed to be material.

NOTE 6:   The following table shows pro forma earnings per share calculated
          assuming that the Company's emergence from bankruptcy and the
          resulting recapitalization discussed in Note 2 occurred as of the
          beginning of each period.

<TABLE>
<CAPTION>
                                13 WEEKS ENDED     13 WEEKS ENDED     39 WEEKS ENDED    39 WEEKS ENDED
                               OCTOBER 30, 1998   OCTOBER 31, 1997   OCTOBER 30, 1998  OCTOBER 31, 1997
                               ----------------   ----------------   ----------------  ----------------
<S>                            <C>                <C>                <C>               <C>
          Net income (loss)      $(4,045,783)       $(3,135,332)       $(6,285,163)      $(7,952,511)

          Weighted average
          number of shares         4,202,951          4,202,951          4,176,092         4,176,092

          Earnings per share          $(0.96)            $(0.75)            $(1.51)           $(1.90)
</TABLE>

                                      -14-
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following tables set forth (i) certain items in the Condensed Consolidated
Statements of Operations as a percentage of net sales for the periods indicated
and (ii) the percentage change in such items from the comparable period of the
prior year.

<TABLE>
<CAPTION>
                                                    Percentage of Sales
                                -----------------------------------------------------------  
                                   Thirteen Weeks Ended           Thirty-nine Weeks Ended    
                                ---------------------------       -------------------------  
                                October 30,     October 31,       October 30,   October 31,  
                                   1998            1997               1998         1997      
                                -----------     -----------       -----------   -----------  
<S>                             <C>             <C>               <C>           <C>
Net sales                          100.0 %        100.0 %            100.0 %      100.0 %    
Cost of sales                       69.8 %         68.1 %             70.3 %       68.2 %    
Selling, advertising, 
  general and administrative        59.0 %         61.3 %             52.5 %       52.2 %    
Depreciation and
  amortization                       1.9 %          2.1 %              1.8 %        1.7 %    
Pre-opening expenses                 3.6 %          0.3 %              1.3 %        0.1 %    
Store closing costs                  1.2 %          0.0 %              2.5 %        0.0 %    
Reorganization items                 0.0 %          0.0 %              0.3 %        1.6 %    
                                   ------         ------             ------       ------     
Operating income (loss)            (35.5)%        (31.8)%            (28.7)%      (23.8)%    
Other expense (income),
  net                                3.3 %          1.6 %            (10.1)%        1.3 %    
                                   ------         ------             ------       ------     
Total expenses                     138.8 %        133.5 %            118.6 %      125.1 %    
Income (loss) before
  income taxes                     (38.8)%        (33.5)%            (18.6)%      (25.1)%    
(Benefit from) income
  taxes                              0.0 %          0.0 %              0.0 %        0.0 %    
Net income (loss)                  (38.8)%        (33.5)%            (18.6)%      (25.1)%    
                                   ------         ------             ------       ------     
                                   ------         ------             ------       ------     

<CAPTION>
                                                            Percentage Change
                                       ------------------------------------------------------------      
                                           Thirteen Weeks Ended          Thirty-nine Weeks Ended         
                                       October 30, 1998 compared to    October 30, 1998 compared to      
                                           Thirteen Weeks Ended          Thirty-nine Weeks Ended         
                                             October 31, 1997                October 31, 1997            
                                       ----------------------------    ----------------------------      
<S>                                    <C>                             <C>
Net sales                                         11.3%                            6.7 %
Cost of sales                                     14.0%                           10.1 %
Selling, advertising, general
  and administrative                               7.1%                            7.2 %
Pre-opening expenses                           1,087.3%                        1,307.8 % 
Store closing costs                                  NA                             NA
Depreciation and amortization                      5.0%                           10.5 %
Reorganization items                                NA                           (80.0)%
Operating income (loss)                           24.2%                           28.8 %
Other expense (income), net                      122.7%                             NC
Total expenses                                    15.7%                            1.1 %
Income (loss) before income taxes                 29.0%                          (21.0)%
(Benefit from) income taxes                        0.0%                            0.0 %
Net income (loss)                                 29.0%                          (21.0)%
</TABLE>


                                             -15-
<PAGE>

THIRTEEN WEEKS ENDED OCTOBER 30, 1998 COMPARED TO THIRTEEN WEEKS ENDED 
OCTOBER 31, 1997:

The net sales increase of 11.3% for the thirteen weeks ended October 30, 1998
compared to the thirteen weeks ended October 31, 1997 is attributable to an
11.0% increase in the weighted average number of stores in operation (from 41.6
stores to 46.2 stores) and an 8.4% increase in comparable store merchandise
sales partially offset by lower non-merchandise revenues.

Cost of sales as a percentage of net sales increased from 68.1% for the thirteen
weeks ended October 31, 1997 to 69.8% for the thirteen weeks ended October 31,
1998, due primarily to lower non-merchandise sales as compared to the comparable
period in fiscal 1998.

Selling, advertising, general and administrative expenses decreased from 61.3%
of net sales for the thirteen weeks ended October 31, 1997 to 59.0% of net sales
for the thirteen weeks ended October 30, 1998 due primarily to higher sales and
partially offset by increased advertising expenses.  The 7.1% increase in the
amount of selling, advertising, general and administrative expense compared to
the thirteen weeks ended October 31, 1997 was the result of the 11.0% increase
in the weighted average number of stores in operation.  
 
Depreciation and amortization increased by 5.0% in the thirteen weeks ended
October 30, 1998 compared to the comparable period of the prior year, due
primarily to the 11.0% increase in the weighted average number of stores in
operation partially offset by re-deploying fixtures from stores closed in prior
periods.  

Other expense, net, increased to $343,943 in the thirteen weeks ended October
30,1998 compared to $154,417 in the comparable period of the prior year, due
primarily to increased interest expense attributable to non-cash interest
charges associated with the $1,445,000 private placement and the Company's
$3,000,000 guarantee to GECC.   See Note 4 of Notes to Condensed Consolidated
Financial Statements.

The increase in the Company's loss before income taxes for the thirteen weeks
ended October 30, 1998 compared to the thirteen weeks ended October 31, 1997 is
primarily due to higher selling, advertising, general and administrative
(primarily advertising) and interest expenses.

Income tax benefits related to the losses for the thirteen weeks ended October
30, 1998 were not recognized because the utilization of such benefits is not
assured.  Such benefits, if any, are available for recognition in future years.
See "Income Tax," below.

THIRTY-NINE WEEKS ENDED OCTOBER 30, 1998 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 31, 1997:

The net sales increase of 6.7% for the thirty-nine weeks ended October 30, 1998
compared to the thirty-nine weeks ended October 31, 1997 is attributable to a
7.6% increase in the weighted average number of stores in operation (from  41.4
stores to 44.6 stores) and a 5.4% increase in comparable store merchandise sales
partially offset by a decline in non-merchandise revenues.

Cost of sales as a percentage of net sales increased from 68.2% for the
thirty-nine weeks ended October 31, 1997 to 70.3% for the thirty-nine weeks
ended October 30, 1998, due primarily to inventory markdowns taken primarily in
April 1998 as part of an effort to liquidate aged merchandise, especially
apparel inconsistent with the Company's current merchandising philosophy. 
Excluding the $342,091 of revenue realized on the sale of such aged merchandise
and the related cost of sales of $761,281 (including $423,400 of markdowns), the
cost of sales as a percentage of net sales would have been 68.3%.

Selling, advertising, general and administrative expense increased from 52.2% of
net sales for the thirty-nine weeks ended October 31, 1997 to 52.5% of net sales
for the thirty-nine weeks ended October 30, 1998 due primarily to a substantial
increase in advertising expenses from approximately $1,908,000 (approximately
6.0% of sales) for the thirty-nine weeks ended October 31, 1997 to $3,058,000
(approximately 9.1% of sales) for the thirty-nine weeks ended October 30, 1998.
The 7.2% increase in the amount of selling, advertising, general and
administrative expense compared to the thirty-nine weeks ended October 31, 1997
was the result of the 7.6% increase in the weighted average number of stores in
operation and the substantial increase in advertising expenses.  


                                    -16-
<PAGE>

Depreciation and amortization expense increased by 10.5% in the thirty-nine
weeks ended October 30, 1998 compared to the comparable period of fiscal 1998,
due primarily to capital expenditures associated with the increased number of
stores in operation.

Other (income) expense improved $3,832,000 from an expense of $424,000 in the
thirty-nine weeks ended October 31, 1997 to income of approximately $3,408,000
in the comparable period of fiscal 1999, due primarily to the corporate
reorganization described in Note 4 of Notes to Condensed Consolidated Financial
Statements and the related receipt of $5.8 million of proceeds from GECC
partially offset by higher interest expense caused by non-cash interest charges
associated with a private placement and the Company's $3,000,000 guarantee to
GECC in the fiscal 1999 period (see Note 4 of Notes to Condensed Consolidated
Financial Statements) and by the cessation of interest accrual on liabilities
subject to compromise through June 16, 1997 of the fiscal 1998 period. 

The decrease in the loss before income taxes for the thirty-nine weeks ended
October 30, 1998 compared to the loss for the thirty-nine weeks ended October
31, 1997 is due to the corporate reorganization in Note 4 to Notes to Condensed
Consolidated Financial Statements.

Income tax benefits related to the losses for the fiscal 1998 and 1999 periods
were not recognized because the utilization of such benefits is not assured. 
Such benefits, if any, are available for recognition in future years.  See
"Income Tax," below.

INCOME TAX

As of January 30, 1998, the Company had a federal tax net operating loss ("NOL")
carryforward of approximately $58,549,000 expiring through 2014, an alternative
minimum tax credit carryforward of approximately $337,000, which is available to
offset regular federal income taxes in the future until fully utilized, and a
targeted jobs credit carryforward of approximately $178,000 expiring in 2006
through 2009.  As a result of the bankruptcy proceedings and the related Plan,
the NOL carryforward, tax credit carryforward and other tax attributes of the
Company will be reduced (perhaps significantly) as a result of debt forgiveness
income in accordance with section 108(b) of the Internal Revenue Code ("IRC")
and/or the receipt of substantial net lawsuit proceeds in excess of such debt. 
In addition, IRC section 382 limits a NOL and a tax credit carryforward when an
ownership change of more than fifty percent of the value of stock in a loss
corporation occurs within a three year period.  Under the Plan and through
subsequent transactions by investors in the Company's Common Stock, the
ownership of the Company may be deemed to have changed by more than fifty
percent.  Accordingly, to the extent NOL and tax credit carryforwards remain
after reduction under IRC section 108(b) and/or the receipt of any net lawsuit
proceeds, the ability to utilize remaining NOL and tax credit carryforwards may
be significantly restricted.


                                    -17-
<PAGE>

STORE DEVELOPMENT 

The Company will concentrate near term principally on developing existing 
stores to full maturity.  It has been management's intention to refine the 
Company's regional presence to an increased emphasis on Texas through the 
openings of stores in Texas and closings of certain stores through negotiated 
lease cancellations or lease expirations.  The new stores are smaller than 
the older stores which average approximately 26,000 square feet.

<TABLE>
<CAPTION>
                     New Stores                                             Closed/Closing Stores
--------------------------------------------------      --------------------------------------------------------------
 Location                Size (Sq. Ft.)    Date         Location                Size (Sq. Ft.)           Date
----------------------   --------------   --------      ---------------------   --------------   ---------------------
<S>                      <C>              <C>           <C>                     <C>              <C>
 San Angelo, TX              13,800       06/06/98      Lawton, OK                  24,000             04/25/98
 Lubbock, TX                 19,200       07/25/98      Shreveport, LA              28,505             07/23/98

 Killeen, TX                  6,493       08/14/98      Lubbock, TX                 27,580             07/22/98
 Carrollton, TX*              8,041       09/12/98      Amarillo, TX                26,000             09/23/98

 Mesquite, TX*                8,506       09/12/98      Baton Rouge, LA             25,122       12/31/98 (projected)

 Dallas, TX*                 11,020       09/26/98      Baton Rouge, LA             25,399       12/31/98 (projected)
 Bedford, TX*                12,616       09/29/98      Houston, TX                 25,000       01/29/99 (projected)

 San Antonio, TX             15,143       10/10/98      Albuquerque, NM             25,600       01/29/99 (projected)
 Irving, TX*                 11,200       10/10/98      Oklahoma City, OK           30,224       01/29/99 (projected)
                                                                                   -------
 Dallas, TX*                 12,548       10/22/98      Total:                     237,430

 Lewisville, TX*             15,000       10/27/98      Average:                    26,381
                            -------
 Total:                     133,567

 Average:                    12,142

*Dallas/Ft. Worth Metroplex
</TABLE>

<TABLE>
<CAPTION>
                             A c t u a l                            P r o j e c t e d
              ------------------------------------------     -------------------------------
              01/30/98    Opened     Closed     10/30/98     Opening     Closing    01/29/99
              --------    ------     ------     --------     -------     -------    --------
<S>           <C>         <C>        <C>        <C>          <C>         <C>        <C>
 Texas          31          11          2           40          0           1          39
 Oklahoma        4           0          1            3          0           1           2

 New Mexico      3           0          0            3          0           1           2
 Louisiana       5           0          1            4          0           2           2

 Tennessee       1           0          0            1          0           0           1
                --          --         --           --         --          --          --
                44          11          4           51          0           5          46
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

The Company began fiscal 1998 with cash of $473,533.  During the thirty-nine 
weeks ended October 30, 1998, the Company generated $5,645,712 from financing 
activities ($126,671 from the exercise of stock options under the Company's 
stock option plan, $1,824,369 from the obligation to GECC related to the 
corporate reorganization discussed in Note 4 of Notes to Condensed 
Consolidated Financial Statements, $1,445,000 from the private placement of 
notes and warrants also discussed in Note 4 and $2,451,416 from an increase 
in the Company's outstanding balance under its credit agreement with GECC, 
net of a $95,100 decrease in bank checks outstanding and $104,298 in payments 
on long term debt), used $5,234,631 in operating activities, including 
$1,292,715 in pre-opening expenses and store closing costs, used $328,032 for 
capital expenditures and ended the period with cash on hand of $556,582. 

                                      -18-
<PAGE>

On June 16, 1997, the Company entered into a credit agreement with GECC 
providing the Company with a revolving credit facility through June 16, 2000 
of up to $15,000,000.  The credit facility bears interest at a floating rate 
equal to the published rate for thirty-day commercial paper issued by major 
corporations (5.1% at December 2, 1998) plus 3% per annum and provides for an 
unused facility fee of 0.5% per annum.  Borrowings under the facility are 
available in aggregate amounts up to 65% of LOT$OFF's eligible inventory for 
the period from August 15 through December 15 and up to 60% for the period 
from December 16 through August 14, subject to certain required reserves.  
The credit facility is collateralized by inventory, accounts receivable and 
other assets. The credit agreement, as amended, contains certain reserve 
requirements, various restrictive covenants, including restrictions on the 
payment of dividends on Common Stock, and various financial covenants, 
including minimum EBITDA, minimum working capital and minimum availability.  
See Notes 1 and 4 of Notes to Condensed Consolidated Financial Statements.  
As of December 11, 1998, LOT$OFF had approximately $10,174,000 available for 
borrowings under the credit facility (after reserves of $874,000) of which 
$8,927,000 was committed, leaving a net availability of $1,247,000.

Management believes that borrowings available under its revolving credit 
facility, available trade credit, anticipated proceeds from outstanding 
litigation, its operating cash flow and its cash on hand will be adequate to 
finance its operations through fiscal 1999.  No assurance can be given, 
however, that such sources of capital will be sufficient or, in the case of 
anticipated proceeds from outstanding litigation, timely received, and 
additional external financing and/or the restructuring of existing 
obligations may be necessary. The receipt of proceeds from Chase from the 
significant litigation brought by the Company (see Note 5 of Notes to 
Condensed Consolidated Financial Statements and "Significant Litigation," 
below) could add significantly to the Company's liquidity and capital 
resources; such proceeds, if any, are not expected in the fiscal year ending 
January 29, 1999.  Should such proceeds not be forthcoming or timely 
received, additional external financing and/or the restructuring of existing 
obligations would be necessary to finance the Company's operations through 
fiscal 2000.  Also, no assurance can be given that the Company will be 
successful in its continuing efforts to attain profitability.  For these 
reasons, any investment in Common Stock should be considered speculative.

SIGNIFICANT LITIGATION

The Company has received a jury verdict and substantial judgments in its 
favor from a lawsuit, under appeal, related to certain parties' breaches of 
contractual obligations to purchase 1,500,000 shares of Old Common Stock and 
actions in misappropriating and removing these shares from an escrow account 
prior to payment for such shares.  The Company intends to vigorously pursue 
all reasonable available avenues to effect the receipt of payment for actual 
and punitive damages.  The matter is being handled by counsel on a 
contingency fee basis.  The Company, based upon advice of counsel, believes 
that it will obtain a favorable result in this lawsuit.  See Note 5 of Notes 
to Condensed Consolidated Financial Statements for further discussion of this 
matter.  

SEASONALITY AND QUARTERLY FLUCTUATIONS

As with most retailers, highest net sales and operating income are 
experienced during the fourth quarter, which includes the Christmas/holiday 
selling season. Otherwise, LOT$OFF's business is heaviest on weekends (Friday 
through Sunday) and at the beginning of each month.  Any adverse trend in net 
sales for the fourth quarter could have a material adverse effect upon the 
Company's results of operations for an entire fiscal year. 

In addition to seasonality, the Company's results of operations may fluctuate 
from quarter to quarter as a result of the timing of store openings and/or 
closings, including the level of advertising and pre-opening expenses 
associated with store openings and inventory markdowns and other expenses 
associated with store closings, as well as other factors.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the reported amounts of assets and liabilities and disclosure of 
contingent assets and liabilities at the date of the financial statements and 
the reported amounts of revenues and expenses during the reporting period. 
Actual results could differ from those estimates.

                                      -19-
<PAGE>

YEAR 2000 COMPLIANCE

The Company has been evaluating its information systems for Year 2000 
compliance, which refers to its having information systems that will 
accurately process date and time data for the Year 2000 and beyond.  The 
Company currently expects to replace certain software programs, modify other 
software programs and complete testing of all programs prior to July 1999 in 
order to achieve Year 2000 compliance.  While a complete cost analysis cannot 
be done prior to completion of the evaluation phase, the Company does not 
currently expect these costs to have a material adverse effect on the 
Company's financial condition, results of operations or liquidity.  The 
Company has communicated with its suppliers of products and services in order 
to assess the extent of those companies' Year 2000 compliance.  To date, such 
suppliers have assured the Company that they will be in compliance.

FORWARD-LOOKING INFORMATION

This Form 10-Q, including Management's Discussions and Analysis of Financial 
Condition and Results of Operations - Liquidity and Capital Resources, 
contains various forward-looking statements and information that are based on 
management's beliefs as well as assumptions made by and information currently 
available to management.  When used in this document, the words "believe," 
"expect," "anticipate" and similar expressions are intended to identify 
forward-looking statements.  Such statements are subject to certain risks, 
uncertainties and assumptions including those set forth below and identified 
elsewhere herein.  Should one or more of these risks or uncertainties 
materialize, or should underlying assumptions prove incorrect, actual results 
may vary materially from those anticipated, estimated or projected.  In 
addition to the other risk factors set forth above and in Note 1 of Notes to 
Condensed Consolidated Financial Statements, among the key factors that may 
have a direct bearing on the Company's results are competitive practices in 
the close-out merchandising industry generally and particularly in the 
Company's targeted market, the result and timing of resolution of significant 
litigation the Company is pursuing and the ability of the Company to fund its 
continuing operations in the event of disappointing operating performance or 
adverse industry or economic conditions, including economic conditions along 
the border of Texas and Mexico.

                                   PART II
                                          
ITEM 1.   LEGAL PROCEEDINGS

See Note 5 of Notes to Condensed Consolidated Financial Statements regarding 
a lawsuit filed in February 1995.  Such lawsuit was also reported in the 
Company's annual reports on Form 10-K for the fiscal years ended February 3, 
1995, February 2, 1996, January 31, 1997 and January 30, 1998 and was the 
subject of a report on Form 8-K dated December 9, 1997.

The Company is a party to certain other legal proceedings arising in the 
ordinary course of business, none of which are believed to be material.

ITEM 2.   CHANGES IN SECURITIES

None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

None. 

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.   OTHER INFORMATION

None.

                                      -20-
<PAGE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:  

          Exhibit 27 - Financial Data Schedule

(b)  Reports on Form 8-K

          None.
                                       
                                  SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the 
Registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized:

                        LOT$OFF CORPORATION

                   By:  /s/ CHARLES J. FUHRMANN II 
                        -------------------------------------------------------
                        Charles J. Fuhrmann II, Chairman, President and
                        Chief Executive Officer (Principal Executive Officer)

                   By:  /s/ JEFF SEIDEL 
                        -------------------------------------------------------
                        Jeff Seidel, Vice President-Finance and Chief Financial
                        Officer (Principal Financial and Accounting Officer) 







                                      -21-
<PAGE>

                                 EXHIBIT INDEX

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